New budget augurs fiscal gloom in Egypt

Higher prices. A vendor waits for customers at a market in Cairo. (Reuters)

Cairo - Egypt’s new budget, which goes into effect in July, is revolutionary and ambi­tious but it will make the lives of the poor harder because it is based on unrealistic revenue expectations and will fail to meet growth projections, econo­mists said. “The whole budget is based on revenue expectations that are im­possible to realise,” said Amr Has­sanein, an economics professor from Cairo University. “These un­realistic expectations will lead to several shocking results, including some related to the estimated defi­cit in the new budget.” The new budget comes only months after the government ham­mered out a $12 billion loan deal with the International Monetary Fund (IMF), which was approved in November and aims to boost foreign currency reserves and strengthen investors’ confidence. The deal led to a series of re­forms, which include the flota­tion of the Egyptian pound and the slashing of fuel, electricity and water subsidies. The reforms came at a cost to poor Egyptians. The flotation of the pound, for example, more than doubled the exchange rate of the US dollar and, consequently, the prices of commodities in local mar­kets. The reductions of fuel, electricity and water subsidies translated into more spending for Egyptian fami­lies and additional suffering. Egyptian Finance Minister Amr el-Garhy said the budget for the new fiscal year reflected the gov­ernment’s reformist drive and its determination to move ahead with the financial and monetary reforms it started last year. “It will seek to boost economic growth and strengthen the social protection net for the poor,” he added in a statement. Nonetheless, few economists agree that the budget will solidify social protection for the poor. “On the contrary, this budget will bring in more financial burdens to the public,” said economist Ali al- Idrisi. “It will make more and more Egyptians poor.” The government said more than one-quarter — 27.8% — of Egyp­tians are poor and cannot buy their basic needs. The poverty rate will rise, economists said, and a look at the new budget explains why. The government aspires to re­duce the deficit in fiscal year 2017- 18 budget to 9.2%, from 10.5% in the current fiscal year. To do this, officials plan to reduce fuel, elec­tricity and water subsidies even more, even as it spends more on such subsidies in the new budget. The extra funding is necessary be­cause of the surge in the exchange rate against the dollar. The Finance Ministry estimates the price of one barrel of oil in the new budget at $55, from $50 in the current budget. This raises the fuel subsidy bill in the new budget to $6.1 billion, from $5.6 billion, even as Egyptians can expect to pay more for fuel in the new fiscal year. A total of $1.6 billion is allocated for electricity subsidies in the new budget, down from $1.9 billion in 2016-17. Almost 74% of revenues for the new budget were expected to come from taxes. Apart from reflect­ing the failure of the government to generate revenues from other sources, economists said, these taxes will cause suffering to mil­lions of Egyptians who are facing high inflation rates — 32.5% in April — already. “The problem here is that — apart from the financial pressures the taxes will put on the budget of or­dinary citizens — the government exaggerates its tax collection abili­ties,” Hassanein said. “This means that the budget deficit will be much higher than projected in the budg­et, which will translate into more borrowing from local and outside sources.” General debts amount in the new budget to 104% of gross domestic product. In the 2016-17 budget, the government hoped to collect $23.7 billion in taxes but those revenues were $19.7 billion, with the differ­ence blamed on tax evasion. The new budget hopes to achieve a growth rate of 4.6%, from 3.8% in the current budget. There are doubts on the ability of the econ­omy to grow that much in the ab­sence of foreign investments, the slow recovery of the tourism sector and the failure of most exports to make a good leap. The government specifies $18.3 billion for social protection and welfare programmes in the new budget. Economists said that amount of money, which includes a 19% increase compared to the budget of the current fiscal year, will be dwarfed by rising commod­ity prices. Mohamed Badrawi, a member of parliament’s Budget and Planning Committee, which has to approve the new budget, said legislators will demand modifications. “My colleagues and I cannot ap­prove a budget that does not spec­ify enough funds for social wel­fare programmes, education and health,” Badrawi said. “Most peo­ple suffer because of the reforms that have been made so far. More financial pressures will mean more anger on the streets.”